How fuel consumers were caught in the war between bureaucrats and distributors

Principal Secretary for State Department of Petroleum, Andrew Kamau. [Samson Wire, Standard]

Consumers were caught between arrogant government officials and belligerent Oil Marketing Companies (OMCs) who were locked in a stand-off that threatened to bring Kenya’s economy to its knees.

By early yesterday, there were no clear indications on when the stalemate would end, with both parties digging in before President Uhuru Kenyatta stepped in and signed a Bill paving the way for the marketers to be paid Sh34.4 billion that the National Treasury owed them.

But that was as Deputy President William Ruto took a swipe at the government - accusing officials of being insensitive to the plight of millions - and private oil companies which he said had formed a cartel that was holding the State captive.

It was a long day for Kenyans - from motorists and boda boda operators to industrialists and farmers - as the shortage created a black market for fuel, with companies that had it selling it above the recommended retail price. In border towns, Kenyans crossed over to neighbouring countries to get supplies.

Oil marketers were demanding to be paid arrears, which they put at Sh32 billion, fearing that if they continued selling their fuel at a loss, their operations would collapse. Earlier, energy sector officials had insisted that they owed the marketers between Sh13 and Sh15 billion before the President eventually approved payment of the Sh34.4 billion.

His Deputy, Dr Ruto, questioned the move, arguing that the money set aside earlier to pay the marketers had been diverted.

“Can the Treasury confirm or deny that the diversion of funds has been used in debt servicing and infrastructure development without the approval of the national assembly?” he asked at a press conference at his official residence in Nairobi.

Earlier in the day, government officials had said that the fuel shortage was artificial, accusing oil marketers of hoarding the critical resource to arm-twist the State.

“A few large players want to force the government to do something, so they create panic,” said the Principal Secretary for State Department of Petroleum, Mr Andrew Kamau said.

Fuel stock in Kenya. [Infographics: The Standard Checkpoint]

Major oil marketing companies could have been committing an act of economic sabotage as government officials sat back and watched.

The oil firms had been withholding petroleum products, causing an artificial shortage and plunging the country into a crisis.

This is even as they held on to more than 94 million litres of diesel and another 69 million litres of super petrol, according to data by the Kenya Pipeline Company (KPC).

While authorities had threatened to crack the whip, the oil companies were not moved, with acute shortages being felt in North Rift, Western Kenya, central Kenya, Nairobi and Mombasa due to failure by the major firms to sell to smaller oil marketers due to confusion over the margins between wholesale and retail prices. The result was long queues by motorists and motorcycle riders at petrol stations the weekend and yesterday.

“Epra (the Energy and Petroleum Regulatory Authority) is currently doing an audit on who has been hoarding fuel. There could be an element of hoarding if they (oil marketers) think that they can hold on to their fuel (hoping that) the government will increase the price of fuel on April 14 and make some more money,” Mr Kamau said. “We will be revoking licences if that is the case.” 

The regulator also cautioned industry players against hoarding fuel, noting that this was an offence under the Petroleum Act, 2019, which prohibits players including owners of petrol stations and fuel depots from hoarding. It also prohibits selling at prices above those that Epra publishes on the 14th of every month. 

“There have been delays in remitting compensation from the stabilisation fund and this has resulted in a number of OMCs holding back sales to the local market,” said Epra in the statement, acknowledging the cause of the shortage. 

“Epra in conjunction with the Ministry of Petroleum and Mining has however assured OMCs of the government’s commitment to promptly settling all pending claims on account of the stabilisation process,” he said. “All OMCs are therefore directed to immediately release petroleum supplies to alleviate the current supply crises.” 

The crisis took a political angle when Dr Ruto, the presidential hopeful under the Kenya Kwanza Alliance, hit out at both the marketers and government officials, accusing them of fomenting the crisis.

“This is the result of collusion of monopolistic cartels and economic saboteurs on one hand, and oblivious, reckless, insensitive and incompetent public officials on the other hand,” Dr Ruto said. 

According to him, the crisis had been orchestrated by cartels and barons who, he said, had hijacked the energy sector with the complacence of government officials.

Government officials earlier said that the fuel shortage was artificial, accusing oil marketers of hoarding. [Wainaina Ndung'u, Standard]

Fuel is a critical resource that literally turns the wheels of the economy with transport, manufacturing and agriculture being highly dependent on fuel to drive economic activities.

As the fuel shortage was unfolding, President Kenyatta signed into law the Supplementary Budget Estimates for the Financial Year 2021-22. The mini-budget contained an allocation of Sh34.4 billion for the fuel subsidy that had been at the heart of the dispute between oil marketers and the government.

Petrol station owners and independent oil marketers had said that major oil marketers were refusing to sell products to them for re-selling in the retail market due to delays in the payment of subsidy funds that the government owed them.

To keep pump prices stable, the government has been cutting marketers’ margins. Marketers have then reimbursed the money, which the government draws from the Petroleum Development Levy. This is a kitty funded by motorists, who pay Sh5.40 for every litre of diesel and petrol.

The marketers were protesting the lengthy periods the government takes before it makes payment. This was why they took matters into their own hands, holding back products from the local market in what is seen as the industry arm twisting the government to release funds.

PS Kamau said the challenges being experienced by independent oil marketers have been due to the sharp increase in oil prices over the last year, which has meant that they have to spend more money to buy the same quantity of products.

Crude oil prices surge to $130 per barrel in mid-March, from about $90 per barrel in early February.